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City of South Sioux City v. The Charter Oak Fire Insurance Co.

United States District Court, D. Nebraska

April 24, 2019



          John M. Gerrard Chief United States District Judge.

         This matter is before the Court on Arthur J. Gallagher's motion to dismiss (filing 54) Philadelphia Indemnity Insurance Co.'s third-party complaint. For the reasons set forth below, that motion will be granted.

         I. BACKGROUND

         As explained in the Court's prior Memorandum and Order (filing 16), this suit involves a commercial insurance policy issued to the plaintiff, the City of South Sioux City, Nebraska by the primary defendant, Philadelphia. See filing 1 at 3, filing 1-2 at 10. Under that policy, Philadelphia agreed to indemnify the City for losses sustained as the result of environmental contamination. See filing 1 at 3, filing 1-2 at 10.

         In October 2016, the City began sending its sewage to Big Ox Energy, LLC, a waste disposal provider located in South Sioux City, Nebraska. Filing 1 at 2. Big Ox would remove methane gas from the City's sewage and discharge the treated waste back into the City's sanitary system (i.e., sewage system). Filing 1 at 2. But soon after the sewage returned to the City, residents began reporting an intense and unpleasant odor emanating from their plumbing. Filing 1 at 2. At some point, the residents discovered that the odor was the result of hydrogen sulfide gas that had backed up in the City's sewage system. Filing 1 at 3. Those residents filed tort claims against the City for property damage and bodily harm caused by the odor. Filing 1 at 3.

         According to the City, the backup of hydrogen gas was a result of contaminated sewage that had been discharged from Big Ox's facility. See filing 1 at 3. So, the City filed a claim with Philadelphia seeking indemnification under its environmental liability policy. See filing 1 at 3, filing 1-2 at 10. Pursuant to that policy, Philadelphia agreed to indemnify the City for losses "arising out of contamination on, under or migrating from [the] insured location"--which the policy specifically defined as 1615 1st Ave, South Sioux City, Nebraska (i.e. the address of City Hall). Filing 1-2 at 14 (emphasis omitted). The policy also contained a "non-owned location" endorsement which provided additional coverage for damages "arising out of contamination on, under or migrating from a non-owned location." Filing 1-2 at 28 (emphasis omitted). Philadelphia denied the City's claim, and the City filed this lawsuit against Philadelphia. Filing 1 at 3.

         After this lawsuit was initiated, Philadelphia filed a third-party complaint against Arthur J. Gallagher Risk Management Services--an insurance broker that, in this case, had obtained the environmental liability policy from Philadelphia on behalf of the City. See filing 52 at 2-3. Specifically, Philadelphia sued Arthur Gallagher for a variety of state law claims including: (1) negligence, (2) misrepresentation or concealment, (3) indemnification (common law), (4) contribution, (5) indemnification (contractual), and (6) breach of contract. Filing 52 at 5-8. Arthur Gallagher now moves to dismiss each of those claims, or alternatively, to sever those claims from the initial litigation between the City and Philadelphia. Filing 54.


         A complaint must set forth a short and plain statement of the claim showing that the pleader is entitled to relief. Fed.R.Civ.P. 8(a)(2). This standard does not require detailed factual allegations, but it demands more than an unadorned accusation. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The complaint need not contain detailed factual allegations, but must provide more than labels and conclusions; and a formulaic recitation of the elements of a cause of action will not suffice. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). For the purposes of a motion to dismiss a court must take all of the factual allegations in the complaint as true, but is not bound to accept as true a legal conclusion couched as a factual allegation. Id.

         And to survive a motion to dismiss under Fed.R.Civ.P. 12(b)(6), a complaint must also contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face. Iqbal, 556 U.S. at 678. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. Where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but has not shown-that the pleader is entitled to relief. Id. at 679.

         Determining whether a complaint states a plausible claim for relief will require the reviewing court to draw on its judicial experience and common sense. Id. The facts alleged must raise a reasonable expectation that discovery will reveal evidence to substantiate the necessary elements of the plaintiff's claim. See Twombly, 550 U.S. at 545. The court must assume the truth of the plaintiff's factual allegations, and a well-pleaded complaint may proceed, even if it strikes a savvy judge that actual proof of those facts is improbable, and that recovery is very remote and unlikely. Id. at 556.

         When deciding a motion to dismiss under Rule 12(b)(6), the Court is normally limited to considering the facts alleged in the complaint. If the Court considers matters outside the pleadings, the motion to dismiss must be converted to one for summary judgment. Fed.R.Civ.P. 12(d). However, the Court may consider exhibits attached to the complaint and materials that are necessarily embraced by the pleadings without converting the motion. Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003).


         Arthur Gallagher moves to dismiss Philadelphia's third-party complaint in its entirety. Filing 54 at 1-2. As noted above, that complaint includes six state law causes of action. Those claims, however, which generally fit into one of two categories: (1) tort allegations or (2) contract claims. The Court will consider Philadelphia's contractual allegations--which tend to provide general context for the parties' dispute--before moving on to Philadelphia's tort allegations.


         At the center of the Philadelphia's third-party complaint is the an agreement between Philadelphia and Arthur Gallagher called the "Preferred Producer Agreement." See filing 58 at 8. Under that agreement, Philadelphia claims that Arthur Gallagher must indemnify Philadelphia for Arthur Gallagher's errors and omissions. See filing 58 at 8. And according to Philadelphia, Arthur Gallagher's "blatant failure to disclose material facts concerning the insurance application," amounted to an error or omission under the Preferred Producer Agreement and thus, Arthur Gallagher breached the terms of that agreement. See filing 58 at 8.

         To state a breach of contract claim, the plaintiff must plead the existence of a promise, its breach, and damage. Henriksen v. Gleason, 643 N.W.2d 652 (Neb. 2002). There is, however, little, if any, information contained in Philadelphia's third-party complaint explaining what promises were actually made in the Preferred Producer Agreement. In fact, the only provision of the agreement mentioned by Philadelphia is the following:

Each Party shall defend, indemnify and hold harmless [Philadelphia] . . . from and against all liabilities, damages, penalties, costs and expenses (including reasonable attorney's fees) arising from or related to any third-party allegations, suits, claims (actual or threatened), actions or proceedings (each a "Claim") together with all damages, liabilities and costs (including attorney's fees and expenses) arising from: (i) any error or omission by [Arthur Gallagher] or [Arthur Gallagher's] employees, agents or other representatives in connection with the performance of its ...

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